Quality Costs: Profit Improvement and Distribution Across Categories, Gainsharing

Muskogee Company had sales of $60,000,000 in 20x1. In 20x5, sales had increased to $75,000,000. A quality improvement program was implemented at the beginning of 20x1. Overall conformance quality was targeted for improvement. The quality costs for 20x1 and 20x5 follow. Assume any changes in quality costs are attributable to improvements in quality.

	20x1		20x5
Internal failure costs	$4,500,000		$225,000
External failure costs	6,000,000		150,000
Appraisal costs	2,700,000		562,500
Prevention costs	1,800,000		937,500
Total quality costs	$15,000,000		$1,875,000

Required:

1. Compute the quality cost-to-sales ratio for each year. Round your answers to three decimal places when rounding is required.

20x1	___
20x5	___

2. Calculate the relative distribution of costs by category for 20x1. Enter your answers as whole percentage values (for example, 6% would be entered as "6").

Internal failure	___	%
External failure	___	%
Appraisal	___	%
Prevention	___	%

3. Calculate the relative distribution of costs by category for 20x5.

Internal failure	__	%
External failure	__	%
Appraisal	__	%
Prevention	__	%